recession

The level of economic activity under capitalism is subject to prolonged ebbs and flows. When the economy is on an upswing, this very fact acts as an elixir that emboldens capitalists, who begin to expect that the “good times” are going to continue; this makes them less worried about taking risks, more “adventurous”, and hence more prone to taking “bolder” decisions in their asset preference. And because of this they also undertake investment in physical assets like construction, equipment and machinery which makes the boom continue, and thereby justifies their euphoria. The opposite happens when there is a downturn. It…

In 2009, the world economy contracted by -2.2%. Growth in all developing countries declined from around 8% in 2007 to 2.6% in 2009 as the developed world contracted by -3.8% in 2009. The collapse of the Lehmann Brothers investment bank in September 2008 symbolized the US financial crisis that triggered the Great Recession of 2008-2009. Demise of Keynesian consensus In its immediate aftermath, a new consensus reversed the neoliberal Washington Consensus of the last two decades of the 20th century. Proclaimed by the G20's London Summit of 2 April 2009, it envisaged return to Keynesian macroeconomic policies, including large-scale fiscal…

The G20 leaders meeting in Hamburg, Germany, on 7-8 July comes almost a decade after the grouping's elevation to meeting at the heads of state/government level. Previously, the G20 had been an informal forum of finance ministers and central bank governors from advanced and emerging economies created in 1999 following the 1997-1998 Asian financial crisis. The new grouping's record in steering the global economy since the first summit in Washington, DC in November 2008 after the global financial crisis (GFC) was acknowledged by financial markets to have begun a couple of months before. London Summit's high point At the following…

The failure of the macroeconomic stance of shifting away from fiscal policy to an almost exclusive reliance on monetary policy has led to the phenomenon of negative rates in countries other than the United States, and the first sign of even a partial recovery in that country has been enough to set off a reversal. negative_interest_rates (Download the full text in PDF format) (This article was originally published in the Economic & Political Weekly, March 25, 2017 vol. LII no. 12)

A distinctive feature of the current phase of capitalism is the growing role of finance capital as an instrument to establish capitalist hegemony and facilitate the appropriation of surplus. In the developed countries this transition towards financial hegemony was the result of the inflationary crisis and stagnation that affected the OECD countries after the late 1960s. The contractionary fiscal and monetary policy response to inflation intensified the deceleration in real growth. This together with the low real interest rates on bank deposits adversely affected banking business and profits. These developments triggered a process of deregulation and liberalisation in the financial…

Many different explanations have been proffered for the “new normal” of “secular stagnation” in the global economy ever since the Great Recession. This is supposed to be exemplified by low growth, verging on stagnation, in the advanced economies, now combined with slower growth in the developing world. Certainly the recovery from the Great Recession of 2008-09 has been anaemic at best, even as it has failed to generate much employment outside of the US (and even there it has created mostly casual, part-time and poor quality jobs). Deflation has persisted in Japan for many years now, and has become evident…

lobal growth rates of the last five years are similar to those in the past, but now they are accompanied by unprecedented monetary expansion that seems to have little impact. Global_New_Normal (Download the full text in PDF format) ( This article was originally published in the Business Line on June 20, 2016.)

Meeting in mid-April on the side lines of the spring sessions of the World Bank and the International Monetary Fund at Washington D.C., Finance Ministers of the G20 countries seemed overcome by a combined sense of despair and fear about the state of the world economy. The Communiqué issued after the meeting describes that state thus: “Growth remains modest and uneven, and downside risks and uncertainties to the global outlook persist against the backdrop of continued financial volatility, challenges faced by commodity exporters and low inflation.” When translated that seems to say the recovery is yet to occur and the…

With interest rates and bond yields turning negative in many developed countries, the efficacy of monetary policy as a counter cyclical instrument is in question. Interest_Rate_Conundrum (Download the full text in PDF format) (This article was originally published in the Business Line print edition dated March 14, 2016.)

Global imbalances in the current account do appear to have come down in the aggregate but the pattern and the outcomes are different from what was anticipated. Shrinking_Global_Imbalances (Download the full text in PDF format) (This article originally published in the Business Line on November 9, 2015.)